1. On 1 January 20X2, a company acquires computer software specific to a project for £200,000. Although the project is in its early stages and is not expected to make profits or positive cash flows for a number of years, the company will start to use the software straight away; it is estimated it has a useful life of 10 years. The company negotiated to defer the payment to the supplier until 1 January 20X4. The company currently pays interest on its borrowings at 6% per annum. Required Show how this transaction would be: A. Journalized on 1 January 20X2; and B. Accounted for in the financial statements of the company for the year ended 31 December 20X2, assuming the present value of the £200,000 is £178,000.
1. On 1 January 20X2, a company acquires computer software specific to a project for £200,000. Although the project is in its early stages and is not expected to make profits or positive cash flows for a number of years, the company will start to use the software straight away; it is estimated it has a useful life of 10 years. The company negotiated to defer the payment to the supplier until 1 January 20X4. The company currently pays interest on its borrowings at 6% per annum. Required Show how this transaction would be: A. Journalized on 1 January 20X2; and B. Accounted for in the financial statements of the company for the year ended 31 December 20X2, assuming the present value of the £200,000 is £178,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:1. On 1 January 20X2, a company acquires computer software specific to a project for £200,000.
Although the project is in its early stages and is not expected to make profits or positive cash
flows for a number of years, the company will start to use the software straight away; it is
estimated it has a useful life of 10 years. The company negotiated to defer the payment to the
supplier until 1 January 20X4. The company currently pays interest on its borrowings at 6% per
annum.
Required
Show how this transaction would be:
A. Journalized on 1 January 20X2; and
B. Accounted for in the financial statements of the company for the year ended 31
December 20X2, assuming the present value of the £200,000 is £178,000.
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